Experienced professionals within the property industry – such as management companies or mortgage brokers – can sometimes take the lingo for granted. But if you’re new to Shared Ownership, you need a handy guide to stay in the know. 

We’ve compiled an exhaustive Jargon Buster to break down almost all of the definitions you’ll need. But what do some of these terms mean in context? 

To help you understand your leaseholds from your freeholds, or how a mortgage in principle differs from a mortgage, we’ve compiled some of the key terms you’ll encounter below.

What is the difference between freehold and leasehold?

For first-time buyers, the difference between leasehold and freehold homes can be confusing. But it’s actually surprisingly straightforward – especially when it comes to Shared Ownership. 

Put simply: 

• Freehold means that you own the property and the land it’s built on 
• Leasehold means you own the property for a set time, but not the land it’s built on. 

All Shared Ownership homes are leasehold, because you’ll own a share of the property while the housing association – such as Legal & General Affordable Homes – will own the remaining shares. Once you secure your property, you’ll sign your lease documentation as part of your contract. 

However, if you raise your share to 100% through a process known as ‘staircasing’, then there’s sometimes the opportunity to own the property outright as freehold. If you want to learn more about the Shared Ownership model and how you can increase your personal share, reach out to a member of our friendly team.

Is an agreement in principle the same as a mortgage?

No, but the two are closely related. An agreement in principle – also known as a mortgage in principle – is a key step for first time buyers (or anyone eligible) in securing their mortgage and progressing with their Shared Ownership purchase. 

An agreement in principle is an official estimate from a mortgage provider on what they’re prepared to lend you, based on financial information such as your salary, debts, and outgoings. It’s not a confirmation from them to provide you with the funds, but instead, a useful figure to steer you on how much money you have to work with when browsing Shared Ownership properties. 

Think of an agreement in principle as the step just before securing a mortgage. Once further checks have been conducted by a mortgage lender, and a process known as ‘underwriting’ has taken place, you’ll be offered a mortgage which you can use on your Shared Ownership home.

What is a Shared Ownership deposit?

A Shared Ownership deposit is almost identical to a standard home deposit, but it’s typically far less than you’d pay for a property outright. 

This is because Shared Ownership deposits are based on the share that you’ll own, rather than the full value of a property. This helps first time buyers to be able to afford a home much earlier than they might otherwise. 

Let’s say that you’re looking at a Shared Ownership property valued at £200,000: 

• You want to purchase a 25% share, which is common for first time buyers 
• A 25% share in a £200,000 property means your share is worth £50,000
• For a 5% deposit on this share, you’ll only need £2,500 

In the UK, the average deposit for first-time buyers is around £53,000. Shared Ownership brings this figure down to a more achievable figure for first time buyers, growing families and individuals – opening the housing market to a much wider group.

Is a service charge the same thing as the rent charged on my Shared Ownership home?

Service charges and rent are different fees associated with Shared Ownership homes, and each have different calculations that first time buyers will be made aware of during the buying process. 

Your rent is calculated based on the shares of the property that you don’t own. In general, Shared Ownership rent is set at 2.75% of the unsold equity, but this can range by property. 

So, if you’re moving into a Shared Ownership home valued at £200,000 and own £50,000 worth of shares: 

• You pay rent on the remaining £150,000 
• Divide £150,000 by 100, then multiply by 2.75, then divide by 12 (number of months in a year) 
• The monthly rent would be £344 

Service charges, meanwhile, are included in the fees of apartments, maisonettes, or coach houses. This is a charge for maintenance on the communal areas or items, such as gardens, heating or lighting. 

Shared Ownership houses also receive service charge fees, described as an ‘Estate Charge’. 

At the start of a year, usually in February, you’ll receive an estimated service charge to be paid in April. At the end of the financial year, you’ll then receive a full account comparing the estimated charges to actual charges – and receive a refund if actual costs are lower than estimated.